Daimler, which makes Mercedes-Benz automobiles and Smart city cars, added in a statement that it would have to take big charges against core earnings in 2009 amid a global slump in car markets.
Daimler's 2008 net profit plunged by 65 percent to €1.4 billion, ($1.8 billion), well below a forecast of analysts polled by Dow Jones Newswires of €2.75 billion. In 2007 the group had posted a net profit of €4.0 billion.
Operating profit plunged to €2.73 billion from €8.71 billion a year earlier, on charges of €3.228 billion "related to the investment in Chrysler and the lower earnings achieved by Bercedes-Benz Cars," the statement said. Daimler had forecast an operating profit of more than €6.0 billion.
The group has sold most of its loss-making US unit Chrysler but still owns a stake of 19.9 percent and was forced to booked charges in connection with that holding.
Daimler Trucks, the global leader, also "did not achieve its prior-year earnings, primarily due to the difficult economic situation in the United States" and expenses incurred in the transfer of manufacturing activities within North America.
The German group said 2008 "consisted of a very good first half and a difficult second half."
It quoted chairman Dieter Zetsche as saying: "During the first half of 2008, we proved how well we perform under normal economic conditions. Many of our business operations were headed for very good results."
But auto markets and global economies in general slumped heavily later in the year, in particular following the collapse of the US investment bank Lehman Brothers in mid September.
Daimler group sales were off by 3.5 percent at €95.9 billion after it reported last month that unit sales had fallen by 2.3 percent.
For 2009, "the great uncertainty about the duration and extent of the global economic downturn is connected with substantial risks for the development of the world's automotive markets," Daimler said.
"Global demand for automobiles could decrease by another 10 percent in 2009 compared with the prior year," it added. "Prospects for the major markets for commercial vehicles are also unfavorable."
Sales were therefore "likely to be lower than in 2008 in all of the vehicle divisions," the group warned.
It planned to cut the 2008 dividend to €0.60 per share from €2 per share in 2007.
Investors did not appear to panic at the results however, and Daimler shares slipped by just 0.49 percent to €23.44 in late morning Frankfurt trading, while the DAX index of German blue-chips was off by 1.92 percent overall.